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Overfunded Plans Underfunded Plans
........................................ ...................................
1990 1989 1990 1989
............................................................................................................................................
Actuarial present value of bene¬t
obligations:
Vested employees $(193,615) $(194,793) $(96,325) $(90,466)
Non-vested employees (12,169) (6,073) (15,407) (3,251)
Total accumulated bene¬t obligation (205,784) (200,866) (111,732) (93,717)
Additional amounts related to projected
salary increases (35,705) (45,637) (3,949) (3,095)
Projected bene¬t obligation (241,489) (246,503) (115,681) (96,812)
Fair value of plan assets (primarily
common equities and ¬xed income
instruments) 245,953 267,184 75,493 68,884
Projected bene¬t obligation less than
(in excess of) plan assets 4,464 20,681 (40,188) (27,928)
Unrecognized net (gain) loss (7,583) (15,018) 9,451 8,442
Unrecognized prior service cost (6,374) (6,934) 17,281 4,673
Unrecognized net liability existing at the
date of initial adoption of SFAS No. 87 6,604 1,682 1,378 4,569
(Accrued) Prepaid Pension Cost $ (2,889) $ 411 $(12,078) $(10,244)
............................................................................................................................................
446 Prospective Analysis: Valuation Theory and Concepts




11-42
Prospective Analysis: Valuation Theory and Concepts




The economic assumptions used in determining the actuarial present value of the
projected bene¬t obligation of the domestic plans were:
1990 1989
......................................................................................................................

Weighted average discount rate 9.0% 8.3%
Rate of increase in future compensation levels 5.3 5.3
Rate of return on plan assets 10.0 10.0
......................................................................................................................




Schneider and Square D
The assumed rates for the company™s international plans, which re¬‚ect the economic con-
ditions of each plan, generally varied from U.S. rates by 1.0 percent to 2.0 percent.
Total pension expense for all plans was $10,914, $8,073 and $12,962 for 1990,
1989 and 1988, respectively. Actuarial assumptions were revised in 1990, 1989 and
1988 principally to update the investment return and rates of pay increase to levels more
re¬‚ective of current economic conditions. These and other changes increased pension
expense in 1990 by approximately $920 and reduced pension expense in 1989 and
1988 by approximately $5,838 and $1,218, respectively.

P. Post-Retirement Benefits
The company provides health plan coverage and life insurance bene¬ts for retired
employees of substantially all of its domestic operations. Substantially all of the com-
pany™s employees may become eligible for these bene¬ts when they retire from active
employment with the company. The cost of retiree health coverage is recognized as an
expense when claims are paid. The cost of life insurance bene¬ts is recognized as an
expense as premiums are paid. These costs totaled $6,165 in 1990, $5,075 in 1989 and
$3,982 in 1988.
The Financial Accounting Standards Board has issued Statement of Financial Account-
ing Standards No. 106, “Employers™ Accounting for Post-Retirement Bene¬ts Other Than
Pensions.” This Statement will require accrual of post-retirement bene¬ts during the years
an employee provides services. While the impact of this new standard has not been fully
determined, the change will result in signi¬cantly greater expense being recognized for
these bene¬ts. The company plans to adopt this Statement in 1993.

T. Segment and Geographic Information
The company is engaged in the manufacture and sale of electrical distribution products,
systems and services and industrial control products, systems and services, and operates
in virtually every major marketing area in the world. Major manufacturing plants are
located throughout the United States and in Europe, Latin America, Canada, Australia
and Thailand.
The electrical distribution segment primarily consists of the manufacture and sale of
products, systems and services used in the distribution of electricity. Distribution equip-
ment is used principally in distributing electricity from the end of transmission lines to
points of utilization within residential, commercial, industrial or other types of buildings.
Distribution products include industrial molded case circuit breakers, miniature circuit
breakers, load centers, safety switches, metering devices, switchboards, panelboards,
motor control centers, low and medium voltage switchgear, busways and raceways, dry
type transformers and power and cast resin transformers.
447
Prospective Analysis: Valuation Theory and Concepts




11-43 Part 2 Business Analysis and Valuation Tools




The industrial control segment mainly consists of the manufacture and sale of control
products, systems and services that control the electricity used in the operation of power
utilization devices or processes. Control equipment includes motor starters, contactors,
push buttons, adjustable frequency motor controllers and sensors. Other products in this
segment include programmable controllers, cell controllers, electronic computerized con-
trol and data-gathering systems, uninterruptible power systems, power protection equip-
ment, infrared radiation thermometers and pyrometers and snap dome switches and
keyboards.
Schneider and Square D




Substantially all products of the electrical distribution and industrial control segments
are marketed through the company™s own marketing organization and distributed
through a system of strategically located warehouses. The majority of all sales are made
directly to authorized electrical distributors who, in turn, market the products to electrical
contractors, electrical utilities, large industrial plants and other classes of trade.
Sales between geographic areas and industry segments are based on prices approxi-
mating current market values. Net sales to a group of customers under common control,
for both industry segments, were $161,015 in 1990, $161,156 in 1989 and $176,700
in 1988.
Financial information by industry segment for the three years ended December 31,
1990 is summarized as follows:

Industry Segments 1990 1989 1988
......................................................................................................................................

Sales
Electrical Distribution:
Unaf¬liated customers $1,170,420 $1,117,619 $1,057,359
Intercompany 18,203 13,083 10,484
1,188,623 1,130,702 1,067,843
Industrial Control:
Unaf¬liated customers 482,899 481,069 440,413
Intercompany 63,919 51,923 49,244
546,818 532,992 489,657
Eliminations (82,122) (65,006) (59,728)
Consolidated $1,653,319 $1,598,688 $1,497,772
Operating Earnings
Electrical Distribution $ 152,280 $ 143,541 $ 138,229
Industrial Control 26,302 31,614 40,046
Eliminations (143) 139 944
Consolidated $ 178,439 $ 175,294 $ 179,219
Identi¬able Assets
Electrical Distribution $ 920,781 $ 755,253 $ 701,973
Industrial Control 503,079 447,913 418,247
Eliminations (792) (646) (835)
Identi¬able Assets of Continuing Operations $1,423,068 $1,202,520 $1,119,385
Net Assets of Discontinued Operations 36,681 170,065 181,338
Consolidated $1,459,749 $1,372,585 $1,300,723
448 Prospective Analysis: Valuation Theory and Concepts




11-44
Prospective Analysis: Valuation Theory and Concepts




Industry Segments 1990 1989 1988
......................................................................................................................................

Depreciation and Amortization Expense
Electrical Distribution $ 36,688 $ 29,815 $ 26,345
Industrial Control 22,612 19,628 18,829
Capital Additions
Electrical Distribution $ 54,763 $ 50,323 $ 43,980
Industrial Control 39,125 30,125 27,975




Schneider and Square D
......................................................................................................................................

Effective September 30, 1989, the company changed its reportable segments from Elec-
trical Equipment and Electronic Products to Electrical Distribution Products, Systems and
Services and Industrial Control Products, Systems and Services.
Financial information by geographic area for the three years ended December 31,
1990 is summarized as follows:

Geographic Areas 1990 1989 1988
.........................................................................................................................

Sales
United States:
Unaf¬liated customers $1,332,390 $1,321,769 $1,256,009
Intercompany 73,646 62,253 47,479
1,406,036 1,384,022 1,303,488
Europe:
Unaf¬liated customers 138,836 115,678 105,471
Intercompany 22,617 23,691 25,207
161,453 139,369 130,678
Latin America:
Unaf¬liated customers 78,867 68,178 53,242
Intercompany 1,300 1,217 1,761
80,167 69,395 55,003
Other International
Unaf¬liated customers 103,226 93,063 83,050
Intercompany 447 256 620
103,673 93,319 83,670
Eliminations (98,010) (87,417) (75,067)
Consolidated $1,653,319 $1,598,688 $1,497,772
Operating Earnings
United States $ 164,155 $ 163,202 $ 156,791
Europe 3,555 212 4,098
Latin America 10,445 12,547 11,212
Other International 650 (463) 3,942
Eliminations (366) (204) 3,176
Consolidated $ 178,439 $ 175,294 $ 179,219

(continued)
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Prospective Analysis: Valuation Theory and Concepts




11-45 Part 2 Business Analysis and Valuation Tools




Geographic Areas 1990 1989 1988
.........................................................................................................................

Identi¬able Assets
United States $1,131,085 $ 952,865 $ 883,334
Europe 158,637 120,483 109,297
Latin America 65,847 62,171 62,924
Other International 70,203 69,357 64,886
Eliminations (2,704) (2,356) (1,056)
Schneider and Square D




Identi¬able Assets of Continuing
Operations 1,423,068 1,202,520 1,119,385
Net Assets of Discontinued
Operations 36,681 170,065 181,338
Consolidated $1,459,749 $1,372,585 $1,300,723
.........................................................................................................................



SELECTED FINANCIAL DATA

1990 1989 1988 1987 1986 1985
...................................................................................................................................................
Summary of Operations
Net sales $1,653,319 $1,598,688 $1,497,772 $1,330,784 $1,274,932 $1,223,193
Cost of products sold 1,088,977 1,027,348 979,591 838,749 820,457 787,310
Selling, administrative and
general expenses 385,903 369,726 338,962 287,386 267,066 237,790
Restructuring charge ” 26,320 ” 11,192 ” ”
Non-operating income 34,740 17,106 17,255 17,590 26,670 14,486
Interest expense 28,760 31,438 22,082 19,699 24,977 21,191
Earnings from continuing
operations before income
taxes 184,419 160,962 174,392 191,348 189,102 191,388
Provision for income taxes 67,773 59,856 63,310 75,736 85,191 89,465
Earnings from continuing
operations 116,646 101,106 111,082 115,612 103,911 101,923
Earnings (loss) from discon-
tinued operations, net of
income taxes 4,079 798 7,852 (5,611) (4,983) (14,735)
Net earnings 120,725 101,904 118,934 110,001 98,928 87,188

Financial Information

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